The proposed law for the Mozambique Sovereign Wealth Fund (WSF), to be sent to parliament, foresees that capitalization will start with this year's revenues from the Coral Sul platform, which began extracting gas from the Rovuma in June.

The bill is expected to be considered by parliament by December, according to the memorandum between the government and the International Monetary Fund (IMF) that underpins the $470 million financial assistance program until 2025.

"Revenues from the exploitation of the 2022 FLNG South Coral Project are shared" according to the articulation of the new law, reads the document consulted today by Lusa and which includes an article about the project.

The draft law foresees that the WSF will be capitalized in the first 15 years with 40% of gas and oil revenues, with 60% coming from the State Budget (OE).

From the 16th year on, the revenues will be shared equally between the fund and the OE, reads the document, which is different from the proposal presented in 2020 by the Bank of Mozambique and which went through public consultation - the proposal was to split it equally for 20 years and then with 80% for the fund.

The basis from which the amounts to be allocated to the WSF and the State Budget will be calculated is still to be detailed.

The law provides that this base is the gross revenue from the exploitation of petroleum resources (including the Tax on Oil Production and the Corporate Income Tax), but the amounts to be delivered to the state for the "production bonus" and "production sharing" are still to be regulated.

Each year, the government will make forecasts for the sector's revenue in the following year and the priority will be to fill the quota foreseen for the State Budget - the law indicates that the WSF portion can be used to cover the difference if the reality falls short of the forecasts.

On the other hand, if the funds exceed the forecasts, the excess goes to the WSF.

There are other special cases in which transfers can be made from the WSF bank account to the State Budget, such as for emergency relief or war, always and only with the authorization of the parliament.

Or in scenarios where the return on the fund's investments is higher than the share that the OE is able to get from gas revenues.

The law requires the definition of a National Development Strategy to guide the structuring investments that must be made with the transfers of oil and gas revenues to the State Budget.

On the WSF capitalization side, the rule is to "invest in non-oil assets.

The bill also clarifies that the fund cannot serve as a guarantee for borrowing (as happened with sovereign guarantees in the case of hidden debts), nor can it finance political or party activities.

The governance of the sovereign wealth fund will be in the hands of the National Assembly - which must be held accountable and which, through a commission, can always request information from the executive -, the Government, through the Ministry of Finance, and the Bank of Mozambique.

The WSF will be based on a dedicated bank account, in dollars, at the Bank of Mozambique.

The WSF bill states that as objectives to harness gas and oil revenues to "leverage the country's development," "contribute to the stabilization of the state budget against volatile oil revenues and accumulate savings for future generations."

By 2020, Mozambique expected to receive $96 billion over the life of the Rovuma gas, almost seven times the annual gross domestic product (GDP), but armed violence in Cabo Delgado has put investments on hold in the meantime.

Thus, of the three liquefied natural gas projects approved for the region, only the smallest (Coral South platform, 3.4 million tons per year) is active, shrinking the forecasts and leaving them uncertain.

The other two projects, about four times larger each, are awaiting decisions from the oil companies.